Mutual Fund News

Investors place their bets on long-term mutual funds

By SHIRLEY WON

Thursday, August 6, 2009

FUNDS REPORTER

Canadian investors yanked about $1.6-billion from mutual funds in July, but it was all sitting in money-market investments paying minuscule returns.

Still, the industry is upbeat because it has managed to attract an estimated $1.9-billion in long-term funds, according to preliminary figures released yesterday by the Investment Funds Institute of Canada (IFIC).

"The long-term sales number is really good," and some of those flows are coming from redemptions in money market funds, said IFIC's manager of statistics Dennis Yanchus.

Long-term funds, which invest in stocks and bonds, are key for the industry because they charge higher fees. July was the fourth-consecutive month the industry has posted net sales in long-term funds, and the second-consecutive month where the industry has reported net redemptions from investors fleeing money market funds.

In many cases, flows from money market funds are also going to high-interest savings accounts within the same institution, Mr. Yanchus noted. "Money that came into money market funds over the last 24 months is now moving [back] to other short-term investments."

IFIC figures indicate that the net outflows essentially stemmed from RBC, Canada's largest fund company that includes RBC Asset Management Inc. and Phillips Hager & North Ltd. The firm suffered from $1.7-billion in net redemptions - all in money market funds.

But Mr. Yanchus said a key trend for the industry is the $80-billion increase in assets under management since February, and that was a result of the increase in market value from rising stock markets.

The market effect continued in July. The S&P/TSX composite index rose 4 per cent in July for a seven-month gain of 20 per cent. The S&P 500 rose 7.4 per cent for a seven-month increase of 9.3 per cent.

Bill Holland, chief executive officer of CI Financial Corp., said that he expects that investors are still gravitating mainly to balanced and income funds as opposed to pure equity investments because they are still nervous about the stock market after last year's meltdown.

"They [investors] are looking at two bear markets in a seven-year period, and that has instilled a healthy amount of fear," Mr. Holland said. "Most markets are up over 50 per cent [from their March lows], and normally with that type of market appreciation you would see a much higher retail investor participation."

CI Financial posted net sales of $158-million in July, but that figure is not part of IFIC's monthly data. CI, which sells segregated and mutual funds, stopped submitting data to the industry group in December.

"We experienced one of our strongest Julys on record for long-term fund net sales," Tim Pinnington, president of the TD Mutual Funds brand within TD Asset Management.

Big sellers included TD Short Term Bond, TD Dividend Growth, TD Canadian Bond Fund and TD Income Advantage Portfolio. These funds have become an "interesting option" given low interest rates for cash deposits and cash equivalents, Mr. Pinnington said in a statement.

Among the non-bank fund companies, Dynamic Mutual Funds was the leader with $222-million in net sales.

"Dynamic is on a tear as a firm," said independent fund analyst Peter Loach. "They have a top manager in every broad asset class - from momentum to growth, value, balanced, foreign and resource. No other complex has that."

Dynamic's momentum funds run by Rohit Sehgal "got hit extremely hard" in the market downturn, and they are among the ones making the most rapid recovery, Mr. Loach said.

Investors are learning that that it pays to put fresh money into the products, sectors or stocks that have been hurt the most, he said. "That is being reflected in the net sales.

"It wasn't that way 10 years ago. People used to look at the two- or three-year numbers, and that was the driver of net sales. Now, it's more like three months so there has been a shift in investment attitudes."

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By the numbers

How the top 12 fund companies fared in July 2009

$-millions

Fund Company

Total Net Assets of Mutual Funds

Total Net Sales of Mutual Funds

Total Net Sales of Long-Term Mutual Funds

Total Net Sales of Money Market Mutual Funds

RBC

$101,530

-$1,743

$516

-$2,259

IGM Financial Inc.

$93,616

-$108

$33

-$141

CI Financial Corp.*

$57,231

$159

$149

$10

TD Asset Management

$51,509

$128

$295

-$167

CIBC Asset Management

$42,975

-$146

$483

-$629

Fidelity Investments Canada ULC

$39,024

$94

$196

-$102

BMO Financial Group

$32,613

$1

$99

-$98

Invesco Trimark Ltd.

$28,511

-$270

-$246

-$24

AGF Management Ltd.

$21,572

-$60

-$48

-$12

Dynamic Mutual Funds

$20,768

$222

$250

-$28

Franklin Templeton Investments

$19,574

-$94

-$67

-$27

ScotiaSecurities Inc.

$19,123

$338

$195

$143

*CI Financial Corp. is not a member of the Investment Funds Institute of Canada. Its figures include mutual and segregated funds.